Tuesday, July 21, 2009

Australia is set to emerge from its downturn a year earlier than forecast, with far fewer people thrown out of work.

The latest Access Economics forecasts have the Australian economy growing this financial year in contrast to the Treasury's Budget forecast which has it shrinking.

"Things are better than either us or the Treasury expected," said Access director Chris Richardson. "Our economic stimulus programs have worked better, and China's stimulus programs are helping us more."

Access now expects unemployment to peak at 7.5 per cent, a full one percentage point below the Budget forecast of 8.5 per cent.

But the Access forecast still implies an extra 200,000 Australians joining the unemployment queue over the next two years, almost half of them from Victoria...
"We have avoided the worst the world had to throw at us," said Mr Richardson. "But that doesn't mean things won't get worse. Retail spending is at a record high thanks to government handouts, but their effect will fade and spending will flatline as unemployment climbs."

"Businesses will wind back spending as around $50 billion stripped from coal and iron ore earnings begins to hit profits."

While not endorsing the Access forecast the Access forecast Treasurer Wayne Swan welcomed the acknowledgement that the stimulus package was helping, agreeing that Australia still faced "strong global headwinds and some major challenges, particularly rising unemployment, as well as very large falls in business investment and the terms of trade, stripping billions from our national income."

Access has Australia skirting a so-called "technical recession" with GDP slipping 0.2 per cent in the June quarter and staying steady in the September quarter before improving.

"It means the worst of the growth slowdown is behind us, but the worst of unemployment is still to come," said Mr Richardson.

The Access forecast has the Australian economy growing 0.4 per cent this financial year, whereas the Treasury's Budget forecast has it shrinking 0.5 per cent. Both Access and the Treasury expect a strong recovery next year of more than 2 per cent with Access expecting an even stronger bounce-back in Victoria of 3.3 per cent.

"Victoria isn't burdened by the size of its finance sector the way NSW is," said Mr Richardson. "And it's already suffered big job losses in manufacturing."

While Victoria's relative reliance on manufacturing will continue to be a drag on growth it stands to benefit from exceptionately strong population growth.

"It going like a train, up almost 2 per cent in the past year alone. That's the fastest population growth rate since Jean Shrimpton scandalised Flemington Racecourse with her mini-skirt back in 1965."

"It's underpinning housing construction and it is helping to protect Victorian retailers."

"And, unlike NSW which was caught flat-footed in the race to justify stimulus funds, Victoria did well in the carve up of national stimulus funding."

An Essential Media poll conducted over the weekend found that 52 per cent of Australians believed economy had hit bottom and was on the way up, compared to 31 per cent who expect things to get worse.

Optimists outweighed pessimists among both Labor and Coalition voters with only Green voters overwhelmingly pessimistic.

NSW will be by far the worst performing Australian economy in the year ahead according to new forecasts which have it going backwards at a time when every other state and territory economy will move forwards.

The Access Economics forecasts have NSW gross state product shrinking 1.2 per cent during 2009-10 at a time when the Australian economy rebounds 0.4 per cent and the Victorian economy 0.5 per cent.

"As well NSW coal miners are starting to feel big income losses from lower prices and NSW is faring badly in the carve up of federal stimulus funds, getting less than its fair share."

"It's adding to pressures on Australia’s weakest link."

Access is expecting NSW unemployment to peak at 8 per cent in mid 2011, , well above its present 6.5 per cent, as another 96,000 NSW residents join the unemployed, roughly half the 200,000 extra Australians expected to find themselves out of work.

Australiawide Access expects unemployment to peak at 7.5 per cent, down on the Budget forecast of 8.5 per cent, but well up on the present 5.8 per cent.

"Our message is that Australia has dodged a bullet - we have escaped the worst the world had in store for us, but nevertheless things will get much worse before they get better," Mr Richardson said.

The Access forecasts are at odds with public opinion reflected in the latest Essential Media poll. Asked on the weekend whether the Australian economy was over the worst and starting to improve, 52 per cent said yes. Just 31 per cent expected things to get worse.

The Access forecasts have retail spending flatlining as the effects of the stimulus handouts wear off and unemployment climbs. Businesses will wind back spending as around $50 billion stripped from coal and iron ore earnings begins to hit profits.

Treasurer Wayne Swan welcomed an acknowledgement from Access that the stimulus package was helping, but said he agreed that Australia still faced "strong global headwinds and some major challenges, particularly rising unemployment, as well as very large falls in business investment and the terms of trade, stripping billions from our national income."

Access has Australia skirting a so-called "technical recession" with GDP slipping 0.2 per cent in the June quarter and growing not at all in the September quarter. "But in the real meaning of the term, we will be in recession," Mr Richardson said. "If the unemployment rate jumps by 2 or more percentage points, it's a recession."

Access expects a rebound in the NSW housing market, but mainly "because it couldn't get any worse". “Even with improving population growth, low interest rates, government handouts and chronic underbuilding, most of NSW’s leading indicators have only just started to bottom out," said Mr Richardson.

"Financing of new dwellings is usually the first indicator to turn and it's been far more buoyant. That suggests a rebound, even though builders might have to wait until 2010 to feel it."